A Framework for the Economic Analysis of Coastal Resource Management

Condensed from “Developing a Framework for Economic Analysis of CRM Investment: The Case of Ubay, Bohol” by Rina Maria P. Rosales. The full report is available here.

In considering investments in CRM, the main issue for government is the considerable time needed for recovery to happen, as well as the cost of rehabilitation, protection and management. The marine sanctuary guardhouse in the above photo was built by community volunteers on Bantigue Island in Danajon Bank, Bohol with support from the DA/USAID FISH project (Photo: A. Sia, 2008)

ncreased global demand for marine products and the unsustainable extraction of resources have accelerated coastal degradation, threatening the food security of fishing communities, who generally comprise the poorer sections of Philippine society, and make up a significant portion of the country’s population. With the current, potentially severe climate change threatening to worsen coastal conditions, the need for government to speed up and invest in coastal resource management (CRM) activities for both mitigation and adaptation purposes is more critical than ever. Fortunately, environmental damage in most cases can be mitigated, if not reversed. Coral reefs, in particular, have been subject to stresses from human activities for thousands of years, and they have shown a “remarkable long-term resilience to such stresses, and can and do recover from even the most devastating impacts” (Ruitenbeek, 1999).

Indeed, in considering investments in CRM, the government’s dilemma is not that the ecosystems would never recover. Often, the bigger issue is the considerable time needed for recovery to happen, as well as the cost of rehabilitation, protection and management, especially in terms of lost economic opportunity for those populations dependent on these ecosystems. For example, although amply acknowledged and recorded in scientific literature as generally and ultimately beneficial, marine protected areas (MPAs) have short-term opportunity costs for subsistence and commercial fisheries, which can quickly undermine the economic stability of fishing communities (Ruitenbeek, 1999). Even so, when making decisions on whether to pursue CRM or not, government should also take into account the many long-term benefits of management.

The USAID/Fisheries Improved for Sustainable Harvest (FISH) Project commissioned a study to develop a framework for the analysis of CRM that shows the economic and financial benefits gained by the municipality from investments in coastal protection and management. The study focused on Ubay, Bohol, one of the few municipalities in the Philippines with relatively advanced CRM.

The total economic valuation (TEV) framework was used as the main tool of analysis. This TEV framework was applied mostly to the coral reef ecosystem because most expenditures of the Ubay local government unit (LGU) have been for the management of coral reefs and fishing practices. TEV refers the sum of all direct, indirect and non-use values of the study site, including all natural goods and environmental services that benefit humans. To estimate the marginal effects of CRM investments, the value of the resources with and without CRM investments, or before and after investments were made, was estimated. The sum of all these benefits was taken to represent the total value added as a result of CRM investments. Total expenditures were then deducted from this amount to get the net economic benefit, an approximate measure of the efficiency of such investments.

A financial analysis was also made, primarily to show if CRM investments also provided a direct source of revenue for the municipality. Such analysis involved examining actual management costs against the revenues generated from the enforcement of CRM rules and regulations.

Costs

Ubay has made significant strides in enforcing its own fisheries ordinance, which draws heavily from Republic Act (RA) 8550 (the Fisheries Code of the Philippines). It has created a coastal law enforcement team, designated a separate building and office purely for CRM operations, and ensured an annual budget dedicated to running its CRM Office and pursuing its CRM Plan. Bantay Dagat operations and the enforcement of MPAs are also integrated in its regular expenditures.

Ubay’s 5-year CRM, completed in 2006, incorporates the elements of integrated coastal management (ICM), where land-based strategies are interlinked with sea-based strategies under 10 general management programs: fisheries management, coastal law enforcement, habitat management, shoreline management, coastal tourism management, watershed management, solid waste management, legal arrangements and institutional development, reproductive health, and livelihood development.

Save for regular coastal clean-up activities and a mangrove rehabilitation project in one barangay, all LGU expenses so far have been for coral reef and fisheries management. The enforcement of fisheries rules and regulations takes the biggest share of the budget. The LGU has purchased most of the equipment required for patrolling and surveillance – boats, communication equipment and safety devices – and regularly supplies its law enforcement team’s direct operational needs (e.g. gasoline, boat maintenance, food for Bantay Dagat volunteers). The allowances provided do not seem adequate to fully compensate the opportunity costs for the fisher-volunteers who dedicate their time to patrolling as Bantay Dagat members. But there was no complaint from the volunteers, probably because they also recognized the job’s non-monetary and long-term economic benefits.

The LGU has provided livelihood assistance to a number of its constituents through the establishment of fish cages and fish corrals. Three fish cages have been set up for three people’s organizations (POs), each with about 25 members. The Bureau of Fisheries and Aquatic Resources (BFAR), through its Ubay Brackishwater Fish Farm Station, provided the technology and fingerlings, and, along with the provincial government and municipal LGU, also contributed the seed money amounting to Php100,000 for each cage. The PO is expected to repay the capital cost after two cropping periods, and the money collected will be used to finance livelihood assistance projects.

In addition to budget allocations for CRM, the LGU is pursuing other ways to finance the operations of its CRM Office. Ubay Executive Order (EO) No. 06-08 mandates that 30% of all revenues from the use of municipal waters and its resources, including fines and penalties, are dedicated to the use of the CRM Office. It would be justifiable to allocate most, if not all revenues of that nature for the implementation of the CRM plan, but EO 06-08 is in principle a progressive step and should be replicated in other coastal municipalities throughout the country.

The total annual costs of enforcing CRM rules and regulations in Ubay were estimated at Php2.03 million in 2002-07, and Php2.4 million in 2008. Besides LGU expenditures, funds from external sources and a substantial amount of unpaid labor and voluntary contributions from community members are included as unpaid costs, which show that a substantial portion of total enforcement costs is being borne by other stakeholders. In addition, the LGU has received assistance from various external sources. The provincial government funded some of its CRM activities; the USAID Fisheries Improved for Sustainable Harvest (FISH) provided the LGU workers with numerous training opportunities to improve enforcement operations, and FISH, as well as the non-governmental organization (NGO) Project Seahorse, also assisted the establishment of MPAs.

Benefits

The following marginal benefits were valued:

A. Increase in volume of fish caught by legal means. Using FISH Project monitoring data, the study estimated that annual landings of fish caught by legal gear doubled from 733,472kg in 2004 (the baseline year) to 1.42 million kg in 2008, while fish caught by illegal gear dropped significantly from 268,717kg to 34,747kg.. These results were validated by records obtained from a fish broker, which showed a 40% increase in the total volume of fish traded in January-July 2008 compared to the same period of the previous year.

Based on an average farmgate price of Php60/kg, the annual value of the increase fish caught by legal gear between 2004 and 2008 was about Php10.3 million, while the value of fish bought by the estimated 19 brokers in Ubay was about Php6.8 million.

B. Damages avoided by stopping destructive fishing. Coral reef restoration activities are currently being undertaken with a wide range of objectives and techniques involving capital, operational and labor costs. Estimating the cost of restoring is a technique used to value coral reefs. If blast fishing occurs, the damage can be said to be equivalent to the cost of having the coral reef restored. Values in the Philippines range from Php13,148 per sqm per year for the Apo Reef National Marine Park to Php14,964 for Tubbataha Reef National Marine Park. The baseline survey conducted by FISH in 2004 indicated 15 blast fishers in Ubay that year, each operating 84 days in a year; with increased enforcement, the number decreased to 8 in 2006, and 0 in 2008. Using a conservative estimate of 5 sqm of reef damaged by each blast and the lower end of reef restoration costs to approximate the value of coral reefs in Ubay, the study calculated the total damages avoided by stopping blast fishing at Php20.5 million a year (Table 5). The figure was not adjusted for inflation and additional transportation costs to get to Ubay and thus represented a minimum value of damages avoided through increased enforcement.

C. Damages avoided by eliminating illegal fishing. This value represents the benefits derived from avoiding damages caused by illegal fishing methods, including overfishing. Annual landings of fish caught using illegal gears (mainly seine, dragnets and dynamite fishing) dropped significantly from 268,717kg in 2004 to 34,747kg in 2008. Assuming an average farmgate price of Php60 per kg, and factoring in the value of gears confiscated in 2008 (Php499,100), the annual value of the decrease in damages from the use of illegal gears in 2004-08 was estimated at Php4 million.

D. Increase in healthy coral cover in MPAs. FISH Project’s monitoring data from 2004 to 2006 showed a total increase in live hard coral of 4.8 has, or an average increase of 6% across all monitoring stations. This translated roughly to a 3% increase in live hard coral every year. This increase was conservatively applied only to the total dead coral area in Ubay MPAs, which was estimated at 10% of the total reef area. Using the same value for coral reefs used in the replacement cost method (Php13,148 per sqm), the study placed the annual value of MPA benefits at Php 56.7 million.

E. Damages avoided by preventing the encroachment of commercial fishers on municipal waters. About 15 commercial fishers are known to have operated in Ubay until around 2005, on the average catching about four times more fish than municipal fishers. Based on the average catch per unit effort for Danish seine in Ubay, the annual total volume of fish illegally caught by commercial fishers was 222,360 kg valued at Php13.3 million, or a total of 444,720kg valued at about Php26.7 million from 2004 until the last commercial fishing operation is assumed to have closed shop in 2005. Averaged over the four years in review, this figure – roughly Php6.7 million -- represented a conservative estimate of the annual damages avoided by the LGU by preventing the encroachment of commercial fishers on its municipal waters.

F. Net Economic Benefit. When added up, the annual economic benefits generated from Ubay’s CRM investments totaled Php98 million (Table 1), a tremendous amount compared to the cost of enforcement (Table 2). The figures are not an absolute or exact estimate of benefits and costs, but they do represent their relative value or magnitude, and in this case demonstrate the soundness of investing in CRM.

Table 1. Summary of Annual Economic Benefits from Enforcement, Ubay, Bohol, 2004-2008

Economic Benefit	Value
Increased municipal fish catch (legal gears)	10,261,156
Damages avoided (blast fishing)	20,475,000
Damages avoided (illegal fishing methods)	4,008,643
Increased coral cover in MPAs	56,700,925
Damages avoided (illegal commercial fishing)	6,670,800
TOTAL	98,116,524

Table 2. Net Annual Benefits from CRM Investments, Ubay, Bohol, in PhP, 2004 – 2008

Total Annual Economic Benefits	98,116,524
Total Annual Costs	2,362,215
Net Annual Benefits	95,754,309

G. Revenues. In addition to taxes on marine-related businesses, the LGU has adopted other revenue-generating schemes that draw from natural resources in the marine sector. Special fishing permits are now sold to non-resident fishers who fish in Ubay’s municipal waters. A registration and licensing scheme has been set up for fishing gears and boats. And the LGU has started issuing auxiliary invoices with concomitant fees for marine products that are brought out of Ubay.

Fines and charges against violators of CRM rules have been collected since 2004, but these are used primarily as regulating measures and disincentives, not as revenue-generating mechanisms. True to such purpose, the total amount of fines and charges collected in Ubay has decreased over the years consistent with the decreasing number of violators recorded by the monitoring survey of the FISH Project.

Collections hit about Php548,000 in 2008, nearly double the previous year’s. Compared with the cost of enforcement (Php2.4 million), this translates to a negative net income of more than Php1.8 million for the LGU. Potentially, revenues can be increased by almost 700% if all the fee provisions in the Ubay Fishery Ordinance are implemented (Table 3).

Table 3. Potential Additional LGU Revenues from CRM Activities, Ubay, Bohol, in PhP

SOURCE	AMOUNT
1. Registration and Licensing
a. Gear	426,900
b. Boats/ fishers	420,400
2. Auxiliary Invoices
a. Capture Fisheries	212,632
b. Aquaculture
b.1 Minimum	131,405
b.2 Maximum	1,017,253
3. Permits, Aquaculture
a. Land Use	2,000,000
b. Production
b.1 Minimum	707,420
b.2 Maximum	5,887,560
b.3 Average	912,800
TOTAL MINIMUM	3,740,245
TOTAL MAXIMUM	9,806,233

The value of CRM

CRM is every LGU’s legal mandate and responsibility, and as Ubay’s experience shows, it is an essential tool for development linked to household income increases and therefore poverty alleviation. In many cases a regulatory function, it has the potential to become self-funded through revenues collected from violators and coastal resource users. The pursuit of revenue must always be ruled by CRM’s goal of sustainable development. While aquaculture and mariculture activities are potentially rich sources of revenue for the LGU, for example, they must be tempered by the need to strengthen management and regulatory measures. Indeed, the LGU may opt to consider the use of economic instruments to enhance enforcement. If the fishing population reaches a point where they are able to police themselves and conduct patrols efficiently, individual transferable quotas or similar instruments may be implemented. Experience in other countries with longer and richer experiences than ours in managing the fishing sector has proven such economic instruments to be reliable revenue sources for the LGU as well as one of the more effective tools for fisheries management.

Reference cited:

Ruitenbeek, J. 1999. Blue pricing of undersea treasures – needs and opportunities for environmental economics research on coral reef management in South East Asia. Paper presented to the 12th Biannual Workshop of the Environmental Economics Program for South East Asia, Singapore, 11-14 May. IDRC, Singapore.